OIL: Oil prices spike as US currency slides

Oil leapt above US$106 in New York on Friday as investor sentiment was driven by the weak US dollar, tight energy supplies and more bad news on the US economy.

New York’s main oil contract, light sweet crude for delivery in May, jumped US$2.40 to close at US$106.23 per barrel.

London’s Brent North Sea crude for May rallied US$2.38 to US$104.90 at the settlement.

“Crude futures were higher as the dollar weakened,” Sucden analyst Nimit Khamar said in London. The weak US currency tends to encourage demand for dollar-priced crude because it becomes cheaper for foreign buyers.

The dollar sank further against the euro on Friday after news that US employers cut a surprisingly large 80,000 jobs last month, the biggest decline in employment in five years, according to a government report.

The mounting job losses swelled the US unemployment rate to 5.1 percent last month, compared with 4.8 percent in February.

Last month’s nonfarm job losses marked the sharpest monthly decline since March 2003 and the start of the Iraq war, while the unemployment rate leapt to its highest level since September 2005.

Friday’s report prompted many commodity fund investors to bet on fresh falls for the dollar, traders said.

“Commodity funds are in many ways ahead of the dollar,” Alaron Trading analyst Phil Flynn said. “The bad jobs number is basically reinforcing the idea that the [US] interest rates will come down.”

“Bad economic news is good for commodities” in the near term, Flynn said.

Mike Fitzpatrick at MF Global said that despite the speculative push, the trend should be lower for oil futures since slower economic growth will mean softer demand.

“Uncertainty over future demand has undermined every rally recently, and if the jobs number is any measure of the pulse of the economy, it certainly has to be disappointing relative to energy demand growth, particularly when coupled with the jump in crude oil stocks recently,” he said. “With stocks building and demand slipping, it is difficult to justify prices at current levels. Technically, the market’s upward momentum seems to be fading ... The US is not alone in experiencing a creeping economic malaise.”

This week, the oil market was gripped by volatility as traders weighed the likely slowing of global economic growth against concerns about tight energy supplies.

Many are concerned that slowing US growth could prompt a slowdown in demand.

On Wednesday, however, prices soared after news that US gasoline reserves tumbled 4.5 million barrels, compared with forecasts for a smaller drop of 2.5 million barrels.

The market is beginning to closely watch gasoline inventories ahead of the US peak demand season for motor fuel, which begins next month when Americans begin their summer vacations.